Bread Financial’s Chief Financial Officer, Perry Beberman, revealed insights into the company’s performance, emphasizing the resilience of the middle-American consumer and the potential for loan growth. Speaking with UBS analyst Nick Holowko, Beberman outlined positive credit trends and the scaling of new partner programs as key drivers for future growth.
Beberman characterized the company’s target demographic as primarily serving the “middle part of the K” economy, focusing on near-prime to prime customers rather than high-net-worth individuals or low-income consumers. He noted that the average income for new vintages Bread underwrites is approximately $95,000, while the overall portfolio sits just under $80,000.
In January 2024, Beberman reported strong credit results, aligning with expectations. He anticipates a seasonal uptick in February, projecting credit metrics to trend towards “near 8,” though he clarified they would not reach a full 8%. This credit improvement is expected to stem from two main sources: partner launches and a favorable portfolio mix.
Loan growth is a major focus for Bread Financial. Beberman indicated that the company maintained flat year-over-year growth in January, which he interpreted as a positive sign of an anticipated shift towards growth. He cited last year’s partner launches, including Raymour & Flanigan, Cricket Wireless, and Vivint, as significant contributors to this trajectory. He also mentioned that there are “yet-to-be-announced” new partnerships in the pipeline.
On the topic of tax refunds, Beberman explained that these typically assist consumers in three ways: paying down debt, increasing spending, or boosting savings. He noted that the effects of tax refunds can extend into March and potentially beyond into May, depending on customers’ income and debt levels.
Buy now, pay later (BNPL) services have seen considerable growth within the payments ecosystem. Beberman highlighted that these offerings cater to consumers who prefer to pay over time but may not qualify for traditional credit. He mentioned that Bread Pay, which represents about 2% of outstanding loans and sales, is one of the company’s products designed to meet this demand. Collaborations with partners like Vivint and Home Depot are facilitating the expansion of BNPL programs, often targeting larger purchases and longer payment durations.
Beberman also addressed pricing strategies and margins. Since early 2024, Bread has made adjustments to pricing following rapid increases in prime rates, moving past an earlier APR cap of 29.9%. These changes are expected to support the company’s outlook for flat to slightly higher net interest margins (NIM). Beberman indicated that the benefits of these pricing adjustments should persist through 2027.
On operational expenses, he noted that Bread’s focus on “operational excellence” has generated significant savings over the past couple of years, amounting to “tens of millions” annually. These savings are being reinvested into technology, artificial intelligence initiatives, and cloud migration, fostering positive operating leverage as revenue expands.
Strategically, Beberman outlined the company’s goal to achieve a mid-20s return on tangible common equity (ROTCE). This entails improving efficiency, normalizing credit loss rates to around 6%, and optimizing the capital stack, potentially including the issuance of up to $300 million in preferred stock. He also mentioned plans to merge Bread’s two legacy banks—its Utah industrial bank and Delaware credit card bank—to enhance funding flexibility and expand direct-to-consumer deposits.
In terms of capital return, Bread’s priorities remain unchanged: funding profitable growth, investing in business opportunities, and reducing debt. Beberman reported a reduction in debt from $900 million at the start of last year to $500 million by year-end. Following this, the company initiated share buybacks, concluding the year with $240 million remaining in share repurchase authorization.
Founded in Columbus, Ohio, Bread Financial, formerly known as Alliance Data Systems, specializes in providing private label credit programs and digital payment solutions for retail partners. The company designs and services proprietary credit products, enabling merchants to foster customer loyalty and enhance sales through tailored financing options.
